We’ve heard it so many times.
As soon as you drive the car off the lot, it loses 25% of its value and why do you want to pay the depreciation costs?
If you purchase a used car, somebody else already paid the costs and you can get a better deal.
On the surface, the logic behind that makes a lot of sense but is it actually true that purchasing a used car is a better value than a new car?
First, let’s remember that getting the most value doesn’t necessarily mean paying the least. Sometimes it works out that way but as we’ve all found in our day-to-day lives, buying the cheapest items may not save us money in the long run.
Car as Investment?
If the car loses 25% of its value as soon as you drive it off of the lot, is that an important fact to consider?
That would only be important if you were to drive it back on to the lot the same day and try to sell it but none of us are going to do that.
We purchase cars not as investments, but as tools.
They get us where we need to go and we are holding on to our cars longer than ever. The truth is that used cars are holding their value much more efficiently than in the past so that 25%, spread over time, isn’t really as shocking as we thought.
Used cars are at an historic high. According to Why a New Car is a Better Deal than Used, from US News, the average price of a three year old car is now $19,200. Hardly a bargain basement price for something that has been used for three years.
Even if you have a Carfax report, you don’t know how well it was maintained over the course of those three years. It might have very little life left on it and you paid almost $20,000 for it. And remember, a Carfax report will only show accidents that have been reported.
You could purchase a new car, complete with warranty for a similar price.
New car loans are below 2% with some dealers offering 0% financing on new cars.
Used car loans are often higher, above 2% in many cases.
Because of the high demand of used cars, dealers are less willing to offer incentives or more competitive pricing because they know they can sell the used car in short time.
New cars may come with manufacturer’s incentives as well as competitive financing.
Cost to Repair
Repair costs continue to rise and because of that, it’s becoming increasingly less cost effective to hold a car for long periods of time while pouring thousands of dollars in to keeping it running. Much like TVs and other electronics, the better value is quickly found in buying new instead of fixing the old.
Although used cars are flying off the lots, they may not be a better value than buying new. Along with better financing, reliability, and dealer incentives, over time the new car may be the better value.
Don’t automatically get lulled into the thought that a used car is better than a new one. Do your homework and decide for yourself the best car purchase for you. There are still great deals out there, but they aren’t as automatic as they used to be.
The conventional wisdom isn’t necessarily wrong but it isn’t always right.